Increased interests, "adrenaline" for Lek? Euro and Dollar touch the lowest level after the tourist season

The Euro to Lek exchange rate continues to fall and has already dropped below the limit of 104 Lek.

According to the official exchange rate of the Bank of Albania, the Euro was exchanged today at 103.97 ALL, the lowest level since August 14.

The European currency has marked the fifteenth consecutive day of decline, in a new cycle of sudden decline that has brought it down to the levels recorded during the summer season. The exchange rate of the Euro against the Lek is down by 11% compared to the same period a year ago.

According to foreign exchange agents, the supply of the Euro in the market continues to be high, while the demand for it is weak.

The fall of the Euro, combined with the progress of the exchange rate in the international markets, is also affecting the fall of other currencies. The American dollar has also suffered a strong fall by 1.23 lek and touched the lowest value of 95.82 lek since August 14.

Although the Euro was confirmed in strong positions even after the end of the summer season, this new downward trajectory was somewhat unexpected. In the last quarter, expectations were more for a slight upward correction, given the decline in tourism flows and an increase in Lek supply, as a result of increased budget spending during the last months of the year. But, so far, nothing like that has happened.

In fact, the increase in the basic interest rate by the Bank of Albania at the beginning of this month, but also the signals for a further increase in the coming months may have given an impetus to the strengthening of the local currency. Expectations of rising interest rates in themselves constitute an incentive for investors to increase demand for the local currency, increasing demand for it. Although in theory the basic rates for the Euro remain higher than that of the Lek (4.5% against 3.25%), the possibilities of investing the Euro in the internal financial market are limited. A new cycle of Lek interest rate hikes could reawaken investors' interest, as it did in the second half of last year.

Meanwhile, the supply of Lek in the financial market should still be low, as evidenced by the high values ??of the budget surplus, the stagnation of deposits in the local currency and in general the weak growth of the monetary aggregate M2.

On the other hand, the demand for the Euro appears lukewarm, which can be explained by the signs of weakening consumer demand in the country. This weakening has been partially compensated by the effect of tourism, especially in the second and third quarters of the year. But, with the passing of the tourist peak period, a decline in consumer demand may be more tangible.

One of the main importers of the economy, the Albanian Electric Power Corporation, also stopped imports after the month of November, which were in any case modest this year, especially compared to last year. The rains in recent weeks have increased water flows and increased energy production, enabling KESH to start exports since the beginning of this month.

A new trajectory of Lek strengthening helps further reduce inflationary pressures in the economy, making imports of goods and services cheaper. But, on the other hand, the stronger Lek increases the difficulties for the exporting sectors of the economy, which this year have suffered significant losses as a result of the fall in the Euro./Monitor